Question 1

Currency trading lacks profitability for large commercial and investment banks but is maintained as a service for corporate and institutional customers.

Accepted Answer

A) True 
 B)False

Question 2

The greatest amount of foreign exchange trading takes place in which of the following three cities?

Accepted Answer

A)  New York, London, and Tokyo 
B)  New York, Singapore, and Zurich 
C)  London, Frankfurt, and Paris 
D)  London, Tokyo, and Zurich 
A)  New York, London, and Tokyo 
B)  New York, Singapore, and Zurich 
C)  London, Frankfurt, and Paris 
D)  London, Tokyo, and Zurich

Question 3

While trading in foreign exchange takes place worldwide, the major currency trading centers are located in

Accepted Answer

A)  London, New York, and Tokyo. 
B)  New York, Zurich, and Bahrain. 
C)  Paris, Frankfurt, and London. 
D)  Los Angeles, New York, and London. 
A)  London, New York, and Tokyo. 
B)  New York, Zurich, and Bahrain. 
C)  Paris, Frankfurt, and London. 
D)  Los Angeles, New York, and London.

Question 4

A common type of swap transaction in the foreign exchange market is the ________ where the dealer buys the currency in the spot market and sells the same amount back to the same bank in the forward market.

Accepted Answer

A)  "forward against spot" 
B)  "forspot" 
C)  "repurchase agreement" 
D)  "spot against forward" 
A)  "forward against spot" 
B)  "forspot" 
C)  "repurchase agreement" 
D)  "spot against forward"

Question 5

A ________ transaction in the foreign exchange market requires an almost immediate delivery of foreign exchange.

Accepted Answer

A)  spot 
B)  forward 
C)  futures 
D)  none of the above 
A)  spot 
B)  forward 
C)  futures 
D)  none of the above

Question 6

The foreign exchange market is NOT efficient because

Accepted Answer

A)  market participants do not compete with one another due to the fact that trading takes place around the world and not in a single centralized location. 
B)  dealers have ask prices that are higher than bid prices. 
C)  central governments dominate the foreign exchange market and everybody knows that by definition, central governments are inefficient. 
D)  none of the reasons listed are accurate because the foreign exchange market is efficient. 
A)  market participants do not compete with one another due to the fact that trading takes place around the world and not in a single centralized location. 
B)  dealers have ask prices that are higher than bid prices. 
C)  central governments dominate the foreign exchange market and everybody knows that by definition, central governments are inefficient. 
D)  none of the reasons listed are accurate because the foreign exchange market is efficient.

Question 7

A spot transaction in the interbank market for foreign exchange would typically involve a two-day delay in the actual delivery of the currencies, while such a transaction between a bank and its commercial customer would not necessarily involve a two-day wait.

Accepted Answer

A) True 
 B)False

Question 8

Identify and explain the three functions of the foreign exchange market.

Accepted Answer

From the authors:
Transfer of purchasing

Question 9

Because the market for foreign exchange is worldwide, the volume of foreign exchange currency transactions is leveled throughout the 24-hour day.

Accepted Answer

A) True 
 B)False

Question 10

Dealers in foreign exchange departments at large international banks act as market makers and maintain inventories of the securities in which they specialize.

Accepted Answer

A) True 
 B)False

Question 11

It is characteristic of foreign exchange dealers to

Accepted Answer

A)  bring buyers and sellers of currencies together but never to buy and hold an inventory of currency for resale. 
B)  act as market makers, willing to buy and sell the currencies in which they specialize. 
C)  trade only with clients in the retail market and never operate in the wholesale market for foreign exchange. 
D)  All of the above are characteristics of foreign exchange dealers. 
A)  bring buyers and sellers of currencies together but never to buy and hold an inventory of currency for resale. 
B)  act as market makers, willing to buy and sell the currencies in which they specialize. 
C)  trade only with clients in the retail market and never operate in the wholesale market for foreign exchange. 
D)  All of the above are characteristics of foreign exchange dealers.

Question 12

TABLE 5.1
Use the table to answer the following question(s).
  
-Refer to Table 5.1. According to the information provided in the table, the 6-month yen is selling at a forward ________ of approximately ________ per annum. (Use the mid rates to make your calculations.)

Accepted Answer

A)  discount; 2.09% 
B)  discount; 2.06% 
C)  premium; 2.09% 
D)  premium; 2.06% 
A)  discount; 2.09% 
B)  discount; 2.06% 
C)  premium; 2.09% 
D)  premium; 2.06%

Question 13

Which of the following may be participants in the foreign exchange markets?

Accepted Answer

A)  bank and nonbank foreign exchange dealers 
B)  central banks and treasuries 
C)  speculators and arbitragers 
D)  All of the above. 
A)  bank and nonbank foreign exchange dealers 
B)  central banks and treasuries 
C)  speculators and arbitragers 
D)  All of the above.

Question 14

Forward exchange rates are normally quoted for value date of

Accepted Answer

A)  two days. 
B)  one, two, three, six and twelve months. 
C)  two years. 
D)  do not have specific maturity date. 
A)  two days. 
B)  one, two, three, six and twelve months. 
C)  two years. 
D)  do not have specific maturity date.

Question 15

What are some of the reasons central banks and treasuries enter the foreign exchange markets, and in what important ways are they different from other foreign exchange participants?

Accepted Answer

Central banks and treasuries enter the f

Question 16

The following is an example of an American term foreign exchange quote

Accepted Answer

A)  $20/£. 
B)  0.85 euro/$. 
C)  100¥/euro. 
D)  None of the above. 
A)  $20/£. 
B)  0.85 euro/$. 
C)  100¥/euro. 
D)  None of the above.

Question 17

For arbitrage opportunities to be practical,

Accepted Answer

A)  participants must have instant access to quotes. 
B)  participants must have instant access to executions. 
C)  bank traders must be able to execute the arbitrage trades without an initial sum of money relying on their bank's credit standing. 
D)  all of the above must be true. 
A)  participants must have instant access to quotes. 
B)  participants must have instant access to executions. 
C)  bank traders must be able to execute the arbitrage trades without an initial sum of money relying on their bank's credit standing. 
D)  all of the above must be true.

Question 18

From the viewpoint of a British investor, which of the following would be a direct quote in the foreign exchange market?

Accepted Answer

A)  SF2.40/£ 
B)  $1.50/£ 
C)  £0.55/euro 
D)  $0.90/euro 
A)  SF2.40/£ 
B)  $1.50/£ 
C)  £0.55/euro 
D)  $0.90/euro

Question 19

A/An ________ is an agreement between a buyer and seller that a fixed amount of one currency will be delivered at a specified rate for some other currency.

Accepted Answer

A)  Eurodollar transaction 
B)  import/export exchange 
C)  foreign exchange transaction 
D)  interbank market transaction 
A)  Eurodollar transaction 
B)  import/export exchange 
C)  foreign exchange transaction 
D)  interbank market transaction

Question 20

The three currencies that dominate foreign exchange trading are

Accepted Answer

A)  U.K pound, Chinese yuan, and Japanese yen. 
B)  U.S. dollar, Chinese yuan, and U.K. pound. 
C)  U.S. dollar, Japanese yen, and the euro. 
D)  U.S. dollar, U.K. pound, and Japanese yen. 
A)  U.K pound, Chinese yuan, and Japanese yen. 
B)  U.S. dollar, Chinese yuan, and U.K. pound. 
C)  U.S. dollar, Japanese yen, and the euro. 
D)  U.S. dollar, U.K. pound, and Japanese yen.

Currency trading lacks profitability for large commercial and investment banks but is maintained as a service for corporate and institutional customers.

The greatest amount of foreign exchange trading takes place in which of the following three cities?

While trading in foreign exchange takes place worldwide, the major currency trading centers are located in

A common type of swap transaction in the foreign exchange market is the ________ where the dealer buys the currency in the spot market and sells the same amount back to the same bank in the forward market.

A ________ transaction in the foreign exchange market requires an almost immediate delivery of foreign exchange.

The foreign exchange market is NOT efficient because

A spot transaction in the interbank market for foreign exchange would typically involve a two-day delay in the actual delivery of the currencies, while such a transaction between a bank and its commercial customer would not necessarily involve a two-day wait.

Identify and explain the three functions of the foreign exchange market.

Because the market for foreign exchange is worldwide, the volume of foreign exchange currency transactions is leveled throughout the 24-hour day.

Dealers in foreign exchange departments at large international banks act as market makers and maintain inventories of the securities in which they specialize.

It is characteristic of foreign exchange dealers to

TABLE 5.1 Use the table to answer the following question(s). -Refer to Table 5.1. According to the information provided in the table, the 6-month yen is selling at a forward of approximately per annum. (Use the mid rates to make your calculations.)

Which of the following may be participants in the foreign exchange markets?

Forward exchange rates are normally quoted for value date of

What are some of the reasons central banks and treasuries enter the foreign exchange markets, and in what important ways are they different from other foreign exchange participants?

The following is an example of an American term foreign exchange quote

For arbitrage opportunities to be practical,

From the viewpoint of a British investor, which of the following would be a direct quote in the foreign exchange market?

A/An ________ is an agreement between a buyer and seller that a fixed amount of one currency will be delivered at a specified rate for some other currency.

The three currencies that dominate foreign exchange trading are

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

Exam 5: The Foreign Exchange Market

Currency trading lacks profitability for large commercial and investment banks but is maintained as a service for corporate and institutional customers.

The greatest amount of foreign exchange trading takes place in which of the following three cities?

While trading in foreign exchange takes place worldwide, the major currency trading centers are located in

A common type of swap transaction in the foreign exchange market is the ________ where the dealer buys the currency in the spot market and sells the same amount back to the same bank in the forward market.

A ________ transaction in the foreign exchange market requires an almost immediate delivery of foreign exchange.

The foreign exchange market is NOT efficient because

A spot transaction in the interbank market for foreign exchange would typically involve a two-day delay in the actual delivery of the currencies, while such a transaction between a bank and its commercial customer would not necessarily involve a two-day wait.

Identify and explain the three functions of the foreign exchange market.

Because the market for foreign exchange is worldwide, the volume of foreign exchange currency transactions is leveled throughout the 24-hour day.

Dealers in foreign exchange departments at large international banks act as market makers and maintain inventories of the securities in which they specialize.

It is characteristic of foreign exchange dealers to

TABLE 5.1 Use the table to answer the following question(s). -Refer to Table 5.1. According to the information provided in the table, the 6-month yen is selling at a forward ________ of approximately ________ per annum. (Use the mid rates to make your calculations.)

Which of the following may be participants in the foreign exchange markets?

Forward exchange rates are normally quoted for value date of

What are some of the reasons central banks and treasuries enter the foreign exchange markets, and in what important ways are they different from other foreign exchange participants?

The following is an example of an American term foreign exchange quote

For arbitrage opportunities to be practical,

From the viewpoint of a British investor, which of the following would be a direct quote in the foreign exchange market?

A/An ________ is an agreement between a buyer and seller that a fixed amount of one currency will be delivered at a specified rate for some other currency.

The three currencies that dominate foreign exchange trading are

Multinational Financial Management: Opportunities and Challenges

The International Monetary System

The Balance of Payments

Financial Goals and Corporate Governance

International Parity Conditions

Foreign Currency Derivatives and Swaps

Foreign Exchange Rate Determination

Transaction Exposure

Translation Exposure

Operating Exposure

The Global Cost and Availability of Capital

Raising Equity and Debt Globally

Multinational Tax Management

International Trade Finance

Foreign Direct Investment and Political Risk

Multinational Capital Budgeting and Cross-Border Acquisitions

Filters

TABLE 5.1 Use the table to answer the following question(s). -Refer to Table 5.1. According to the information provided in the table, the 6-month yen is selling at a forward of approximately per annum. (Use the mid rates to make your calculations.)